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Last Updated: Oct 9, 2008 - 10:18:39 AM |
The current Kremlin team exemplifies an American saying: They were born
on third base but believe they hit a triple. After a decade of record
oil prices, Russian leaders became convinced that their enlightened
policies turned Russia into a robust economic power on par with the
Group of Seven. They came to believe that oil and gas give Russia
enormous political and economic leverage.
Having touted Russia as a safe haven in the global financial crisis,
they were caught off guard when the crisis hit home. As they
frantically search for a solution, they may exacerbate the damage and,
in a worst-case scenario, destroy Russia's private sector.
Few people recall that while the United States enjoyed the Roaring
Twenties, Soviet Russia went through a modest consumer boom of its own.
The New Economic Policy, or NEP, introduced in 1921 permitted
small-scale free enterprise, especially in the consumer sector and
agriculture. By 1928, Russia overcame thse economic devastation of the
Revolution and attained pre-World War I levels of industrial and
agricultural output.
The NEP was ended by Stalin in 1929 and replaced with forced
industrialization and collectivization. Russia would not attain similar
prosperity and economic freedom for another seven decades.
The current financial crisis has been called the worst in U.S. history
since the Depression -- which was ushered in by the stock market crash
of 1929. For Russia, this may prove to be an ominous coincidence. Sure,
Russia is very different now from the 1920s, but there are troubling
similarities.
Even though the NEP was legal, entrepreneurs, or NEP-men as they were
known, were harassed by the expanding Soviet bureaucracy, loaded with
onerous taxes and harangued by the press. When NEP-men were shut down
and expropriated, which was followed by the mass dispossession of
prosperous peasants on the countryside, the Soviet public was only too
glad to see them get their due.
Today, Russia's private sector lives in constant fear of the
government. Small and medium-sized businesses are throttled by rules
and regulations whose sole purpose is to make it easier for officials
to collect bribes. Well-connected bureaucrats set up businesses that
unfairly compete with genuine entrepreneurs and confiscate companies
from legitimate owners. Rich businessmen, such as Igor Zyuzin, the
billionaire owner of the metals and coal conglomerate Mechel, quiver
like schoolboys before Kremlin despots.
Even though private enterprise creates jobs and fills previously empty
store shelves with consumer goods, entrepreneurs are odious figures for
many Russians, portrayed by the media as the bloodsuckers of the 1990s
brought to heel by Vladimir Putin.
In the 1920s, the government retained what it called the "commanding
heights" of the economy, including industrial enterprises, banks and
transportation. Today, the government once more owns Russia's most
important assets, such as energy companies and the largest financial
institutions.
When Russia defaulted on its debt and devalued the ruble in 1998, the
crisis didn't result in any structural changes in the economy. At the
time, the government was weak, while the oligarchs, identified by Boris
Berezovsky as the Seven Bankers, held the political and economic reins.
Moreover, nationalization was out of the question because the nightmare
of the Soviet economy was still fresh in national memory.
Now, many Russians are too young to remember much about the Soviet
Union, whereas older people reminisce fondly about free sausage
distributed by their factories at New Year's and conveniently forget
the dreariness of the Soviet way of life. Suddenly, a Communist path no
longer seems so awful to a large portion of Russia's population.
Finally, there is the xenophobia. Anti-Western and anti-American
sentiment ran high during the conflict with Georgia, which was when the
current financial crisis began. Russian government officials at the
highest level accuse Washington of purposefully crashing the Russian
stock market or at least exporting its crisis to Russia.
This kind of rhetoric is familiar, and financial controls could follow.
In 1998, Malaysia imposed stringent capital controls to combat the
Asian financial crisis. Venezuela, Russia's newest friend and economic
partner, maintains a peg for its bolivar, as well as restrictions on
the movement of capital. It is very likely that if financial turmoil
endures, Russia will slap controls on financial flows in and out of the
country.
There is more. Even before the advent of the current crisis, the
Russian government showed that it prefers to fight inflation with
Soviet-style administrative fiat rather than with economic means. Now,
state aid to the financial system is being channeled through
state-owned banks. The banking system will be reshaped by this crisis
-- in part out of necessity, but also because state-owned behemoths
will jump on this opportunity. Previous crises, such as the run on Guta
Bank in 2004, tended to expand the reach of state-owned banking at the
expense of private institutions.
Similarly, when private companies experience difficulties repaying
their debts or obtaining new loans, they will get state help by putting
up their shares as collateral. If the bad debt crisis worsens, as seems
likely, the state will end up with equity stakes in a large number of
previously independent enterprises.
This doesn't necessarily mean the demise of the private sector.
However, if financial troubles persist, the government may take over
entire industries, ranging from agribusiness to construction and
retail. After a prolonged crisis, the private sector in Russia may turn
into a collection of small-scale cooperatives reminiscent of Mikhail
Gorabachev's perestroika. No wonder the last Soviet leader recently
returned to politics and even founded a new party.
In the early 1990s, I used to send packages of frozen chicken
drumsticks, known derisively as nozhki Busha, or Bush's legs, to my
Moscow friends. Many of them have since become well-off and own
prosperous private companies. Well, before long I may find myself
scouring the back alleys of Brooklyn once more, looking for
fly-by-night outfits offering to send Bush's legs to Moscow.
Source:Ocnus.net 2008
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